New Fraud Concerns over EMV Standards Contribute to Slow Compliance Rates

With only several months until the mandatory deadline, the new Europay, MasterCard and Visa (EMV) chip and pin standards have been met with dismal compliance by U.S. merchants, and recent news reports that EMV could actually increase application fraud are not helping.

The new EMV standards, which US businesses must comply with by October, are supposed to increase security against credit card fraud. Any merchant who fails to implement the standards will be subject to a counterfeit card liability shift. However, recent reports hypothesize that EMV may actually increase fraud. The United States is one of the last countries to deploy EMV, but the accounts of EMV use in other countries report that while card fraud was reduced, application fraud skyrocketed.

Vice President of Business Solution Group of the Americas at BAE Systems Applied Intelligence Dena Hamilton told the Credit Union Times that statistics from EMV rollouts in the United Kingdom, the Asia-Pacific, and Canada show a 300% to 400% jump in application fraud.

“Application fraud rises because it is perpetrated by identity theft.” Hamilton told Credit Union Times.

Credit card application fraud occurs when a fraudster uses stolen identity information, such as social security numbers, to open a credit card account in the victim’s name. Application fraud can cause the victim debt, negative credit ratings, and sometimes even bankruptcy.

This is particularly concerning when considering that the United States already “leads” the world in global payment fraud. According to research service BI Intelligence, the U.S. accounted for nearly 51% of global payment card fraud costs in 2013. In fact, the Bureau of Justice Statistics reported that an estimated 7.7 million United States citizens reported the fraudulent use of a credit card in 2013. Payment technology leader First Data notes on its website that credit card fraud losses topped $10 billion in 2014.

In her statements to the Credit Union Times, Hamilton noted that “[t]he U.S. has $3 billion in losses associated with the card-present fraud [alone], when we roll EMV out where is that fraud going to migrate to? The fraudsters are not going to give up that type of income.”

Time will tell whether the EMV standards will increase application fraud, but regardless, U.S. merchants must still comply with the standards by October 1, 2015 or face the wrath of the liability shift, which would hold merchants, not credit card issuers, liable for any fraudulent chip card transactions on non-EMV compliant terminals.

According to the EMV Migration Forum, roughly 120 million Americans have already received an EMV chip credit or debit card and forecasts that 575 million chip cards will be issued by the end of 2015. On their end, many merchants have yet to implement the new standards, and the Huffington Post printed a recent report which noted that about 49% of small business owners were completely unaware of the liability shift altogether.

So far, about 59% of U.S. businesses with point-of-sale (POS) devices are now expected to be EMV compatible by the end of 2015, according to the Aite Group.

Despite potential complications, all merchants should implement these standards before the October 1 deadline, because their business could face immense costs if they become subject to the liability shift. The use of newer pinpad equipment and POS systems are now being strongly encouraged by merchant service companies, as POS systems are readily accepted as the best payment processing technology by the industry, and they come preinstalled with EMV-compliant chip and pin functions, including older POS systems.

Contact your processor to learn more about the mandatory compliance and whether your business meets the EMV standards. Some merchant service providers, such as Merchant Service Group LLC, offer their merchants free upgrades to make EMV-compliance. To see if your equipment meets the standards, check this list.

For more information, please email us at